Pre-Authorization (Pre-Auth)

Pre-authorization, often referred to as "Pre-Auth" or "Auth Only," is a financial process used primarily in the hospitality and travel industries, among others, to secure approval for a payment transaction before the actual goods or services are delivered. This process involves reserving a specified amount of money on a customer's credit or debit card to confirm that sufficient funds are available to cover the future payment.

The pre-authorization process is particularly crucial in scenarios such as hotel bookings or car rentals, where a customer may reserve a service in advance. By securing pre-authorization, businesses ensure that they have a guarantee of payment when the service is eventually provided. This method not only secures the merchant's revenue but also minimizes the risk of non-payment after the service has been rendered.

In practice, when a pre-authorization is completed, the amount authorized is held and deducted from the customer’s available credit limit but is not yet transferred to the merchant. The actual charge is only processed and the funds transferred once the service is provided or at the end of the reservation period.

Pre-authorization is a valuable tool for both businesses and consumers. It provides businesses with financial security and reduces the incidence of fraudulent transactions, while consumers benefit from the assurance that services will be paid for without immediately parting with their funds, thus maintaining control over their spending until the point of service delivery.